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Planning remote worker tax relief for coronavirus times

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Quick Fix

— The coronavirus pandemic shouldn’t cause remote worker tax problems, too, so a leading lawmaker is cooking up a fix.

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— Investors in Opportunity Zones are getting a reprieve on some pressing timing issues, thanks to relief from the IRS.

Driving the Day

HANDS OFF: A solution could come together for out-of-state taxes on workers who traveled from home to help elsewhere during the coronavirus crisis, thanks to the Senate’s second-ranking Republican. John Thune of South Dakota, the Senate Majority Whip, is crafting a bill that would limit tax exposure to Covid-affected workers and businesses.

The measure would directly apply to Covid relief workers, as well as others whose jobs have been affected differently by the pandemic — workers who typically go to jobs across state lines but instead are working from home for now, potentially causing them higher tax liabilities as a result. It would also address state and local tax withholding and nexus issues brought on by remote work.

The idea from Thune, a Finance Committee member, derives from mobile workforce legislation (S. 604 (116)) that he has pushed for years with Sen. Sherrod Brown (D-Ohio). The issue has come to the fore nationally in the past month after New York Gov. Andrew Cuomo said doctors and other health care workers who came to the state to fight the crisis would face taxes on income they earned while there.

“We need to make sure that medical professionals who traveled to other states to help fight the coronavirus aren’t rewarded with big tax bills,” Thune said on the Senate floor on Thursday, while pitching his broader mobile workforce bill and other measures to help the slumping U.S. economy.

He didn’t discuss tailoring the original bill for coronavirus-specific issues, but a GOP aide said Thune is assembling such a proposal and wants to build bipartisan support to help get it into any future economic relief packages. Thune will likely introduce the modified version of the original mobile workforce bill in the next few weeks when final details get ironed out, the aide said.

But it shouldn’t prove difficult to tweak the original language to apply to this year and cover Covid-related remote work, said Andrew Moylan, executive vice president for the National Taxpayers Union Foundation. He suggested tying it to the total length of time the presidential emergency declaration runs rather than the original bill’s 30-day threshold.

“Done right, that would go a long way toward solving the individual income tax side of things,” Moylan said, adding that he sees a need for separate business tax simplification, too.

Tax complications for workers employed in one state while residing in another aren’t unique to New York, though reciprocity agreements generally help settle the matter in many other multi-jurisdictional areas.

OPPORTUNE TIMING: The IRS late Thursday decided to grant deadline relief to Opportunity Zone investors because of the coronavirus, our Bernie Becker reports. The decisions largely align with three key requests made by the investment community, according to Michael Novogradac, managing partner of Novogradac & Co. He pointed out that instead of facing a 180-day requirement to move proceeds from a sale into an Opportunity Zone investment fund to defer capital gains, the IRS will give investors until the end of the year as long as their 180-day deadline fell on or after April 1.

In addition, the IRS ruled that the nine months from April 1 until Dec. 31 won’t count toward a two-and-a-half-year deadline the investment funds face to improve properties obtained through the Opportunity Zone program. Lastly, the IRS won’t penalize funds whose Opportunity Zone holdings fall below a 90 percent threshold from April 1 until Dec. 31.

Speaking of tax-preferential investments, regulations on taxing carried interest are getting fresh scrutiny before public release, with OMB officials now reviewing proposed rules for a second time. Changes brought on by 2017’s Tax Cuts and Jobs Act (H.R. 1 (115)) triggered the rule-writing process to begin with, and the extra examination could focus on complexities facing so-called tiered partnerships, Eric Yauch reports for Tax Notes. Carried interest qualifies for preferential tax rates as long-term capital gains after three years, two years longer than pre-TCJA.

In a letter sent Thursday to IRS Commissioner Chuck Rettig, Grassley said he wants to understand how the IRS turned a blind eye in these cases, which were brought to light on Monday in a report released by the Treasury Inspector General for Tax Administration. Grassley acknowledged that the findings predated Rettig’s tenure but nonetheless asked if the IRS has continued using the same criteria for stopping collection efforts against a taxpayer or never starting them in the first place.

The IRS for years has faced criticism that its enforcement efforts target lower-income taxpayers at a far higher rate than scrutiny on the upper crust, a disparate treatment that has become more pronounced as congressional Republicans have cut IRS funding and the agency has focused resources on less complex examinations.

Around the World

PROLIFERATION SPREADING: Spanish authorities took another step toward starting a new tax on digital services there, a 3 percent revenue tax, more specifically. Lawmakers in Spain’s lower legislative house voted to start drafting the plan, and finalization is expected to take three to four months, Reuters reports. But the country’s budget minister called the tax “a transitional and provisional decision,” which would only take effect in the absence of a global or Europe-wide agreement.

U.S. officials have fought against individual countries that have already adopted or plan to enact similar taxes, which would affect major American companies like Google, Apple, Facebook and Amazon, instead encouraging an effort through the Organization for Cooperation and Development to secure worldwide agreement on the issue. A growing number of countries in Europe and elsewhere, including Chile with a new 19 percent value-added tax, want to wring tax revenue from companies with remote customers within their borders.

Around the Nation

GRINDING TO A HALT: The Seattle area’s public transportation system could find itself in dire straits because of a plunge in sales tax revenue, which funds more than half of its operations, according to new projections from Sound Transit. Declining ridership during the pandemic also won’t help. Tax-based funding for adding more tracks and bus service could run out in eight years and the agency could run out of cash next year, according to KIRO Radio 97.3 FM. To fill the projected shortfall from earlier budget plans, the transit agency could ask voters to approve new borrowing or a property tax hike that would more than triple the going rate. Sound Transit is considering a request for 5 percent on every $1,000 of assessed value, up from 1.5 percent at present.

Did You Know?

Today’s full moon, known as a strawberry moon because berries come into bloom this time of year, also coincides with an eclipse, though visibility depends partly on where in the world you’re reading this.

About The Author : Aaron Lorenzo

Aaron Lorenzo is a tax reporter for POLITICO Pro, an assignment that has him canvassing Capitol Hill most days of the week to talk to members of the Senate Finance and House Ways and Means committees.

He previously covered taxes for Bloomberg BNA, and before that he covered economic and monetary policy responses to the 2008 financial meltdown and recession. Prior to all of that, Aaron wrote about the biotechnology drug industry, covered a little bit of local school board news and reported on more high school sports than he cares to remember.

In his free time, Aaron enjoys baseball, barbecue, yard-work and wine, in no particular order. He was born and raised in Tampa, Fla., graduated from Boston University and lives with his wife in Washington, D.C.